The
changes in London's property taxes
- both the recent stamp duty reforms and a new capital gains tax for foreigners
- may give investors from Singaporepause
for thought before buying in the property safe haven.

But some believe
that growing jitters leading up to the UKgeneral elections next May could be
the best opportunity for Asian buyers to drive a harder bargain, taking
advantage of the slower market and a general feeling of caution.

The real estate market is already
experiencing disruption and uncertainty, but this is likely a short-term
transition period and, ultimately, will have a "very, very small
impact" on buying, as the fundamental attractiveness of London real estate remains, analysts say.

The main
downside is that the taxation of UK-held property has become more complex, so
"international investors unfamiliar with UK tax rules will inevitably incur
greater costs associated with compliance, or they risk failing to comply with
rules through ignorance," says Mark Pollack, director of property agency
Aston Chase.

Camilla Dell,
managing partner of Black Brick Property, a buying agency, however, says:
"We love nervous markets as it gives us the ability to negotiate more
strongly on our clients' behalf."

Our view is that
the next five months present perfect buying conditions for buyers that are
willing to take the plunge," she said. "They could be rewarded
handsomely, as the longer-term forecasts over the next five years are for
20-25% growth across central London."

The market has
had about a year now to adjust to a capital gains tax that will be levied on
non-UK residents when they sell a UK propertythat they are not staying in, starting
April 2015.

Many see it as a
long overdue closure to a "tax loophole", given that UK residents
have always had to pay capital gains tax on their second homes, but foreigners
were exempted from any.

"Most of
our overseas clients have
always thought it a bit odd . . . Most investors expect to pay some tax when
they make a gain in another country," says Ms Dell.

There is no
doubt many international property investors have been attracted to the absence
of such a tax and exploited that. But even with the tax in place next year, it
remains cheaper than other hot-favorite jurisdictions for property investors.

At 28% of
capital gains, it remains lower than equivalent taxes in New
York, Paris andAustraliawhich can approach
35 - 50%, depending on various factors.

Adam Challis,
JLL head of residential research in London,
says what is perhaps more damaging is the uncertainty surrounding valuations.
The tax will only be levied on gains made from April 2015 and not on any
previous gains, but he asks how all of these properties are going to be valued
at the same time.

"What we
don't know is how they will be valued and measured, who will be responsible for
the cost of managing a current valuation, and some of the impact on specific
types of ownership," he said.

"Details
for investors are very important for transparency. And there are a number of
details that we believe the government still needs to work out and have not
done. The lack of clarity around some of these issues is why we are having
short-term uncertainty," Mr Challis added.

For now, values
in most parts of central London
remain strong and are expected to grow 5-6% over the medium term, but he has
seen the jitters quell property transaction
volumes, especially at the top end of the market.

That uncertainty
is also partly driven by the ambiguous and widely criticized mansion tax which
the Labour Party had proposed to be imposed annually on homes valued at more
than £2 million - provided, of course, that it wins the general elections next
May.

But the
Conservative Party, led by Prime Minister David Cameron, had in early December
announced and effected its own version of the mansion tax - in the chancellor's
words: " . . . in stark contrast to the shambles of the anti-aspirational,
unworkable homes tax that the Labour party wants to impose."

Basically, the
old "slab system" where stamp
duties are charged at a single rate on the whole purchase price of
a home has been abolished and given way to a fairer, graduated system where
each rate will only apply to the part of a property price which falls in that
band, like income tax.

For purchases of
£937,000 and below, buyers will enjoy savings in stamp duty under the reformed
system. This is good news for Asian buyers, most of whom don't buy above £1
million, analysts say.

"Buyers
from Asia tend to go for properties in the
range of £500,000 - 900,000, for which there will be a modest lowering of
transaction costs. As a result, the expectation is a modest boost for
mainstream activity," JLL's Mr Challis says.

Asians
make up between a third to 40% of property investors
in the UKby various estimates. But that
percentage dwindles as one approaches the higher end of the market, which is
crowded with buyers from Europe, the Middle East and Russia.

The reformed
stamp duty rises incrementally to as much as 12% for the portion above £1.5
million, which means a £2 million property will incur £154,000 stamp duty,
compared with £100,000 before. Analysts thus expect the prime market to be
badly hit, although Black Brick's Ms Dell points out "that buyer profile
group is quite frankly able to absorb the slightly higher taxes".

In comparison,
Hong Kong's stamp duty reaches 8.5% at the top end of the market, while Singapore's
hits 15% for foreigners, and 7% and 10% respectively for citizens and permanent
residents buying a second home.

Analysts think
the prime central London
residential marketwill stall
until these luxury homes are re-priced to take into account the higher stamp
duty. Mr Pollack says: "It's inevitable that this will cause many deals to
fall through and for aggressive and desperate re-negotiations to happen."

Meanwhile, there
is no guarantee that the Labour Party will drop the idea of a mansion tax over
and above the stamp duty changes if it wins, even though an add-on tax now
seems senseless and unnecessary.

If it does,
Aston Chase's Mr Pollack says, it would result in "a huge backlash from
both the domestic and investor markets" and would shave 30% off existing
capital values.

It is amid this
uncertainty that the high-end market now functions, but therein lies the
opportunity for Asian buyers who have been mulling and hesitating about
accessing the London
property market.

"If buyers
sit and wait until after May 2015, they may be disappointed. If you look back historically
everytime we have had a general election in the UK, once the election has happened,
the market bounces back. So if the Conservatives win, we believe the market
will very quickly return to normal, with no threat of a mansion tax, and the
opportunity will have been lost," Ms Dell says.

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